KATHMANDU(BullionStreet): Nepal's decision to raise customs duty on gold is purely to help India and not to ensure enough gold supply in the country, alleged Nepali gold dealers.

They said Nepali jewelers are facing shortage of yellow metal at a time when wedding demand is at its peak and any duty hike will make the yellow metal expensive in the Nepali market.

Nepal, last week raised customs duty on gold Rs 3,500 per tola from Rs 2,682 per tola in a bid to control smuggling of gold to India, which raised customs duty on gold to 6 percent from 4 percent.

The fresh revision means Nepal's customs duty on gold is Rs 120 per 10 grams more than the duty fixed by India.

Analysts estimated the price difference between global and Nepali prices to climb by Rs 3,600 per tola from Rs 2,750 per tola at present.

Nepali jewelers are getting only about 15 kg of gold from designated banks even though daily demand for gold hovers at around 40 kg.

Meanwhile, Nepal Gold and Silver Dealer's; Association said there is no guarantee that a duty hike will control gold smuggling from Nepal to India given the open borders

It said such a small duty difference would be simply insufficient to control gold smuggling to India which has been increasing in recent months due to shortage of Indian Currency in Nepali bordering towns.

Smugglers sell gold to India to earn IC which they exchange in Nepal at inflated rates. Though official exchange rate of IRs 100 is Rs 160, IRs 100 fetches as much as Rs 168 in Nepali bordering towns.

Analysts said gold has become the new currency for traders looking to pay for illegal imports of goods from India, smugglers have even started to illegally traffic gold from China to Nepal and then take it to India.

Since there is shortage of Indian currency (IC) to pay for under-invoiced goods, traders sell smuggled gold in India and use it to pay for imports. Likewise, in bordering areas, IC obtained from smuggling gold is used to exchange at a premium rate higher than authorised Rs 1.6 due to its scarcity.